About a month ago, British chip designer Imagination Technologies revealed something which came as a bolt from the blue for them. It was announced that Apple, who is one of its most prominent clients, is pulling support for the PowerVR graphics chips as it is now developing its own independent graphics designs.
As soon as this report dropped on the interwebs, investors went berserk and Imagination Tech’s share price took a nasty nosedive. It is now trading in the positive because of the announcement shared by them just now, via an official blog post. When the chip designer made everyone aware of the crisis it was affected with, since Apple’s royalty payments amounted for a majority of its revenues, it then also mentioned that it would attempt to resolve its long-standing partnership with the tech giant. And it’s doing just that.
As you can witness in the share price screenshots attached underneath, the current share price of Imagination Technologies is about 99 euros. It is trading nearly 2.5 percent higher than yesterday’s price as seen in the image on the left. But, now turn your sight to the right image and you’d notice that the chip designer still has a long way to go.
The share price dropped around 70 percent when Apple disclosed it would be severing ties with its supplier over the next couple years. It was trading around 300 euros and is now barely trading at 100 euros — which UBS analysts have predicted to be extremely true for when Apple’s revenue share is removed from the chip maker’s balance sheets. And it could be the case when Apple finally decides to drop support for its graphics chips in the next 15 to 18 months.
PowerVR graphic chips are considered an important component of Apple’s iOS -powered devices, namely the iPhone and iPad. This enables Cupertino to show high-resolution images on their advanced Retina displays. And Imagination Technologies is of the similar opinion, thus, it had initiated discussions with Apple regarding their commercial relationship. But, nothing fruitful has been achieved as of yet.
Imagination has been unable to make satisfactory progress with Apple to date regarding alternative commercial arrangements for the current licence and royalty agreement.
With regards to same, the chipset company has commenced a ‘dispute resolution process with the Cupertino giant. The company is currently looking to convince the Cupertino giant to keep their arrangement alive under the existing licence agreement. It plans on reaching a middle-ground (or an agreement) through a more structured process, which is not too pricey for Apple and can help save Imagination Tech some revenues. It believes Apple won’t be able to develop its own graphics chip without infringing on their tech, so an agreement would be the appropriate option as per them.
To balance out the pressure built by the losses after the announcement of the aformentioned hubbub, Imagination Technologies is parting ways with two of its businesses — MIPS and Ensigma. These sales will provide the British chip designer with a much-needed capital push to help it stay afloat and improve its balance sheet. The former division is focused on the embedded processor markets and was acquired by Imagination back in 2012 for 60 million pound. The latter division, on the other hand, offers comprehensive IP licensing for connectivity products.
